In June 2006, Russel Howard was injured in an automobile accident in Kentucky in which his vehicle was rear-ended by an underinsured motorist. Howard sued the uninsured driver and his own insurer, American Family Mutual Insurance Company, in a Kentucky court. The underinsured driver settled for $25,000, the limits of his State Farm Insurance automobile policy.

Howard’s American Family policy had underinsured motorist coverage of $100,000 per person and $300,000 per accident, and he also had personal umbrella coverage of $1 million. When the underinsured driver and Howard agreed to settle, Howard sent American Family written notice of the offer to settle. American Family and Howard agreed that Howard’s underinsurance claim in the Kentucky court would be dismissed, with leave for Howard to re-file a claim in an Indiana court.

Howard re-filed his claim in Indiana. Three days before a jury trial was to begin, American Family filed a motion to substitute the uninsured motorist as the proper defendant and to prohibit Howard and the witnesses from making any reference to insurance or American Family. The trial court granted American Family’s motion; Howard appealed.

On appeal, Howard argued that the trial court did not have the legal authority to substitute the underinsured driver as the defendant, and that, even if it did have the authority, it abused its discretion by excluding all references to insurance and American Family at trial.

The Court of Appeals of Indiana agreed with Howard on both points. In reaching its decision, it emphasized the fact that American Family had allowed Howard to settle with the underinsured motorist for the limits of the underinsured motorist’s insurance. In addition, because it did not advance payment to Howard, the insurer did not preserve its subrogation interest.

Thus, American Family “invited” separation of the claim against the underinsured motorist, leaving Howard’s underinsured motorist claim against American Family as a separate first-party claim for contract enforcement. The court concluded that Indiana law did not allow the underinsured driver to be substituted for American Family. It also found that because American Family was a proper named defendant, its identify could not be shielded from the jury.

The decision of the lower court was reversed, and the case was remanded for further proceedings.

Howard vs. American Family Mutual Insurance Company-No. 87A01-0910-CV-512-Court of Appeals of Indiana-June 17, 2010-928 North Eastern Reporter 2d 281.

Gary Tibbetts owned a motorcycle repair business. In June 2006, Tibbetts decided to take a customer’s motorcycle home, and because the weather was so nice, he extended his ride. During the ride, a car collided with Tibbetts, and Tibbetts was seriously injured.

Tibbetts was able to collect the full $100,000 liability limits from the car driver’s insurance company. There were five other policies that potentially could provide underinsured motorist coverage, including three motorcycle policies issued by Dairyland Insurance Company: to Clark, the motorcycle owner; to Tibbetts; and to Tibbetts’ girlfriend and business partner in a policy that included Tibbetts as an insured. The other two policies were a National Indemnity Company garagekeepers liability policy and a MMG Insurance Company automobile policy issued to Tibbetts. Before trial, National Indemnity settled with Tibbetts for $30,000. Of the remaining policies, the parties agreed that the Dairyland policy issued to Clark was the primary underinsured motorist policy, while the other Dairyland policies and the MMG policy were excess policies. The Clark Dairyland policy provided for medical payments of up to $5,000 per person, but it also contained a business use exclusion.

The lower court found that the Dairyland policy’s business use exclusion did not apply. It also ordered Dairyland to pay Tibbetts $195,000, the difference between the $325,000 verdict and the $130,000 already paid. Both parties raised several issues on appeal.

On appeal, Tibbetts argued that the court improperly deducted National Indemnity’s pretrial $30,000 settlement amount from the verdict because National Indemnity was an excess insurer and was not required to pay. The Supreme Judicial Court of Maine disagreed. It noted that the goal of the underinsured motorist statute “was to provide an injured insured the same recovery which would have been available had the tortfeasor been insured to the same extent as the injured party.” Thus, any payments received by Tibbetts were properly included in the offset against the judgment.

Dairyland argued on appeal that the $130,000 should have been deducted from Dairyland’s $250,000 policy limits so that Dairyland was obligated to pay only $120,000. Under Dairyland’s argument, the remaining $75,000 would be paid by the excess insurers. The court rejected this argument, noting that, in instances where the policy limit was less than the offset amount, this approach could produce a result where the primary insurer would pay nothing.

Dairyland also argued that the lower court improperly determined that Tibbetts’ use of the motorcycle did not fall within the policy’s business use exclusion. The policy excluded medical payments for “[a]nyone occupying a motorcycle used in the business of selling, repairing, servicing, storing or parking motor vehicles.”

During the trial, the jury found that Tibbetts was using Clark’s motorcycle with his permission, and the parties agreed that he was engaged in a test drive of the motorcycle. According to Dairyland, while the motorcyle was not regularly used as a part of Tibbetts’ business, at the time of the accident it was being used “in the business.” The court agreed with Dairyland and found that at the time of the accident the motorcycle was being used as part of the repair process. The court concluded that medical payments benefits were excluded.

The judgment of the lower court was affirmed with the exception of the reversal of the medical payment benefits decision.

Tibbetts vs. Dairyland Insurance Co.-No. PEN-08-435-Supreme Judicial Court of Maine-July 15, 2010-2010 Maine Reporter 61.

Note: This opinion has not been released for publication in Westlaw’s permanent law reports. Until released, it is subject to revision or withdrawal.

Matthew Cardiello, age 20, had a party in his parents’ home while they were out of town. Wendy Flomerfelt, age 21, a guest at the party, became ill when she overdosed on alcohol and drugs. She filed a lawsuit against Cardiello claiming that he provided the alcohol and drugs, and that after she was found unconscious he failed to obtain help for her in a timely manner. Cardiello’s parents were insured under a Pennsylvania General Insurance Company homeowners policy.

When Cardiello approached the insurer for defense and indemnification, Pennsylvania refused to do either, citing policy language that excluded claims “[a]rising out of the use…transfer or possession” of controlled dangerous substances. Cardiello filed a declaratory judgment action asking the court to find that Pennsylvania General was obligated to defend and indemnify him.

The trial court found in favor of Cardiello, but the Appellate Division reversed the trial court’s decision. The Supreme Court of New Jersey agreed to accept the appeal of the Appellate Division’s decision.

During the trial phase of the cases, two experts provided opinions as to the cause of Flomerfelt’s injuries. Flomerfelt’s expert was of the opinion that her injuries were caused by the ingestion of multiple drugs and alcohol, and that the injuries were made worse because there was a delay in seeking medical attention. Cardiello’s expert stated that Flomerfelt’s injuries could have resulted from prior drug use or a genetic predisposition. In addition, Cardiello’s expert did not believe that the delay in seeking medical attention affected Flomerfelt’s injuries.

On appeal, the Supreme Court of New Jersey stated that Pennsylvania General bore the burden of demonstrating that the policy exclusion applied, and that the duty to defend continued as long as there was a “potentially covered claim.” The court noted that the insurer had chosen to use the phrase “arising out of “ on its own, with no further qualification. The court then noted that the phrase should be read broadly to mean that the injury was one that “originated in” or “grew out of” or had a “substantial nexus” to the excluded act.

Applying that standard, the court then noted that the record was not sufficient to determine, as a matter of fact, the cause or causes that led to Flomerfelt’s injuries. Thus, the issue of whether there was a duty to indemnify could not be decided. Nevertheless, there was enough in the record to decide the question of whether there was a duty to defend. The court then concluded that Pennsylvania General had a duty to defend Cardiello.

The decision of the Appellate Division was reversed and the matter was remanded to the trial court for further proceedings.

Flomerfelt vs. Cardiello-Supreme Court of New Jersey-July 7, 2010-2010 Westlaw 2671573

In August 1999, Martel Heating & Cooling installed a new attic air conditioner in the home of Jeffrey and Margaret Heintzelman. The air conditioner malfunctioned several times after it was installed. Martel attempted to correct the problem, but was never successful. Eventually Martel went out of business, so the Heintzelmans hired Air Experts, Inc., to repair the air conditioner. Unfortunately, the problems continued. In July 2002, Jeffrey was investigating water leaking from the air conditioner when he came into contact with an unprotected electrical outlet installed by Martel. He was electrocuted and killed.

In December 2002, Margaret Heintzelman and the estate of Jeffrey Heintzelman filed a lawsuit against Martel and Air Experts alleging wrongful death and negligent infliction of emotional distress. Martel’s insurer, American Family Insurance Company, hired counsel to defend Martel, but also filed a declaratory judgment action asking the court to find that it had no duty to provide coverage for anything awarded the Heintzelmans in the underlying lawsuit. The Heintzelmans were not joined as parties in the declaratory judgment action, nor did Martel file an answer to the complaint, under the advice of American Family. Thomas Martel also claimed that when the court entered a default judgment in favor of American Family, the insurer told him it would have no effect on him.

On March 7, 2005, the jury in the underlying lawsuit found in favor of the estate on the wrongful death claim for $1,014,186 and in favor of Margaret Heintzelman for $2,650,000 on the emotional distress claim. The emotional distress claim was overturned on appeal, but the wrongful death award was sustained. Soon thereafter the Heintzelmans filed a complaint against American Family, alleging that Martel’s policy provided coverage for their injuries. American Family claimed that the earlier judgment in the declaratory judgment action precluded coverage. The trial court agreed, holding that the Heintzelmans were bound by the judgment even though they were not parties to the declaratory judgment action. The Heintzelmans appealed, and the court of appeals reversed the decision of the lower court. American Family appealed, and the Supreme Court of Ohio agreed to hear the case.

On appeal, the court noted that the Heintzelmans had filed their complaint pursuant to an Ohio statute that allows successful plaintiffs to file post-judgment, supplemental complaints against insurers to recover damages. After analyzing the statutory scheme, the court concluded that because American Family initiated the declaratory judgment action and did not include the Heintzelmans as parties, the Heintzelmans were not precluded from filing their supplemental complaint. In addition, the court found that the judgment in the declaratory judgment action was not binding on the Heintzelmans.

The judgment of the court of appeals was affirmed.

Estate of Heintzelman vs. Air Experts, Inc.-No. 2008-2173-Supreme Court of Ohio-July 15, 2010-2010 Westlaw 2788292.